Finally, the Fed must be more straightforward in its communication. It seems to remain the central bank in advanced countries that is most prone to, using a phrase from former Chancellor of the Exchequer Rishi Sunak, “fairy tale economics”; and it is the most systemically important of all these central banks.
Regardless of what the Fed does next week, without addressing these four deficiencies, the central bank will continue to lack the credibility needed to avoid being remembered by economic historians as having unnecessarily caused a U.S. recession; having destabilized a global economy still trying to recover from Covid; having worsened inequality; having fueled unsettling financial instability; and having contributed to debt stress in fragile developing countries.
Mohamed A. El-Erian is a Bloomberg Opinion columnist. A former chief executive officer of Pimco, he is president of Queens’ College, Cambridge; chief economic adviser at Allianz SE; and chair of Gramercy Fund Management. He is author of The Only Game in Town.